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Ask Dave

Designate a percentage

How should Luke handle the cost of upgrading equipment? Dave tells him how he does it.

QUESTION: Luke is debt-free except for his home, and he has a small business with revenues of around $100,000 annually. He needs to upgrade some equipment and wonders how he should handle the cost.

ANSWER: We’re in the media business, too, and around my office it seems like we buy more and newer technology every day. It’s like a black hole. You could throw money into it the rest of your life, because practically the very moment you open the box it’s obsolete.

We finally decided to designate a percentage of our revenues to equipment replacement. Something is always being replaced, but this way we’ve got a spending limit and we’ve got something set aside to make our technology needs happen. It’s like the envelope system. If the envelope’s empty, we have to stop buying for a while.